July 18, 2010
Prepare responses to Questions 1 & 4, and Coach Problems CP 2-1 from Ch. 2 of Fundamentals of Financial Accounting.
Lester’s Home Healthcare Services (LHHS) was organized on January 1, 2005, by four friends. Each organizer invested $10,000 in the company and, in turn, was issued 8,000 shares of stock. To date, they are the only stockholders. During the first month (January 2005), the company had the following six events:
a. Collected a total of $40,000 from the organizers and, in turn, issued the shares of stock. b. Purchased a building for $65,000, equipment for $16,000, and three acres of land for $12,000; paid $13,000 in cash and signed a note for the balance, which is due to be paid in 15 years. c. One stockholder reported to the company that 500 shares of his Lester’s stock had been sold and transferred to another stockholder for $5,000 cash. d. Purchased supplies for $3,000 cash.
e. Sold one acre of land for $4,000 cash to another company. f. Lent one of the shareholders $5,000 for moving costs, receiving a signed six-month note from the shareholder.
1. Was Lester’s Home Healthcare Services organized as a partnership or corporation? Explain the basis for your answer.
I believe that Lester’s Home Healthcare Services is a partnership. A partnership are businesses or organizations owned by two or more people and in this case it is four people. Each partner often is personally liable for debts that the partnership cannot pay and in this case, each party invested $10,000. As the only stockholders of the company they are the only stockholders who would take the loss making the shares private which also leads me to believe this is in fact a partnership. If the stocks were to be publically traded on NASDAQ along with other components, it would be a corporation.
4. Based only on the completed spreadsheet, provide the following amounts (show computations):
a. Total assets at the...